Did Changing Sentiment Drive CStone Pharmaceuticals's (HKG:2616) Share Price Down By 18%?
The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by CStone Pharmaceuticals (HKG:2616) shareholders over the last year, as the share price declined 18%. That's well bellow the market return of -6.9%. CStone Pharmaceuticals hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. It's up 1.7% in the last seven days.
See our latest analysis for CStone Pharmaceuticals
We don't think CStone Pharmaceuticals's revenue of CN¥11,536,000 is enough to establish significant demand. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, they may be hoping that CStone Pharmaceuticals comes up with a great new product, before it runs out of money.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. While some such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized).
When it last reported its balance sheet in June 2019, CStone Pharmaceuticals could boast a strong position, with cash in excess of all liabilities of CN¥3.3b. This gives management the flexibility to drive business growth, without worrying too much about cash reserves. But with the share price diving 18% in the last year , it could be that the price was previously too hyped up. You can see in the image below, how CStone Pharmaceuticals's cash levels have changed over time (click to see the values). You can see in the image below, how CStone Pharmaceuticals's cash levels have changed over time (click to see the values).
It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
CStone Pharmaceuticals shareholders are down 18% for the year, even worse than the market loss of 6.9%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. With the stock down 7.7% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 3 warning signs for CStone Pharmaceuticals (1 can't be ignored) that you should be aware of.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
